Harry Potter and Deliberate Ignorance in Welfare Economics

Why Some Information is Better Ignored

Deliberately ignoring information can sometimes lead to better decisions. This can also be the case in the relationship between the market and the state—that is, in whether the state should intervene in the economy to correct for a market failure, for example. Economist Felix Bierbrauer presents examples from welfare economics and considers the potential effects on fairness, freedom, and individual motivation.

Text: Felix Bierbrauer
Assistance: Elena Hungerland, Kerstin Skork (editorial work), Susannah Goss, Deborah Ain (translation into English)

Imagine that Albus Dumbledore, the headmaster of Hogwarts in the Harry Potter series, is dividing up a cake between archrivals Harry Potter and Draco Malfoy. His aim is to maximize the satisfaction of needs - to use an economic term, he wants to maximize overall utility.

If Harry and Draco were interested only in their own piece of the cake, it would make sense for Dumbledore to cut it into two equal pieces. Supposing Harry received a smaller piece and was therefore hungrier than Draco, then redistribution from Draco to Harry would be the best way to maximize the satisfaction of needs. Harry’s gain would be larger than Draco’s loss, as Draco has already had enough.

In this example, though, we are dealing with two individuals with very different characters and contrasting perspectives on how to split the cake: Harry is altruistic and self-sacrificing, whereas Draco is avaricious and self-interested. Let us suppose that Harry, the altruist, would not only enjoy his own piece of the cake, but would derive additional utility from Draco being happy with his piece.

If Dumbledore takes Harry’s altruism and Draco’s avarice into account when considering how to cut the cake, he will be duty bound to give Draco a bigger piece. Deviating from a fifty-fifty split in this way will result in a loss of utility for Harry and a gain in utility for Draco that more or less balance each other out. But Harry is also happy for Draco. Taking Harry’s altruism into account thus results in the total gain outweighing the loss. Applying a measure of welfare that considers both the satisfaction of needs and the intensity of altruism or avarice will result in Draco being given a bigger piece of cake than Harry. In other words, Harry is punished for his altruism and Draco is rewarded for his avarice. But that doesn’t seem fair or acceptable. Dumbledore thinks twice. Which information should he take into account in his decision and which information is better ignored?

Efficiency, Market Failure, and Distributive Justice

Considerations such as these play a central role in welfare economics, which examines whether economic outcomes are fair or whether adjustments are needed. Primarily, welfare economics addresses the question of whether market outcomes can be considered efficient or whether government interventions are needed to correct a market failure. Another question is whether even efficient market outcomes should be corrected by the government for reasons of distributive justice. Dumbledore’s decision on how to split the cake is a simple example of this kind of distribution problem.

But in welfare economics things are not usually quite so simple. Consider the clash between environmental and climate change considerations and economic interests. The goal of welfare economics in this context is to address possible market failures. What that means is illustrated in the following example by economist Ronald Coase - although it is not principally concerned with deliberate ignorance, it nevertheless clarifies the logic of welfare economics.

A fishery and a chemical plant are located on the banks of a river. The chemical plant, which is sited upstream, releases waste into the river. This pollution has negative effects on fish stocks, reducing the fishery’s earnings. A joint owner would curb the release of waste products into the river or invest in clean technologies to make sure that the fishery doesn’t lose out. If the chemical company is only interested in its own profits, however, environmental pollution isn’t the only adverse outcome: There is also an inefficiency in the stricter economic sense.

In plain terms, it would be quite possible to take measures to protect the water quality without harming the chemical company financially: If the chemical company had to pay an emission charge for releasing waste into the river, it would have an incentive to invest in clean technologies. The fishery’s higher earnings would lead to higher tax revenues, which could in turn be used to subsidize the chemical plant’s investment. These measures can be set up such that the chemical company is no worse off, but the fishery benefits from cleaner water. The bottom line? The gains from protecting the environment are so high that it is possible to compensate the potential losers - ultimately, there are no losers.

An important premise in welfare economics is methodological individualism: Only the preferences of those affected are taken into account when weighing up a situation. Any paternalistic motives on the part of decision makers are left out of the equation. To return to our initial example: Dumbledore’s affection for Harry must not affect his deliberations on how to split the cake. By the same token, environmental protection plays a role solely to the extent that it is in the interests of the chemical plant and the fishery.

Ignoring Preferences in Welfare Economics

As the Harry Potter example shows, giving equal weight to all available information on people’s attitudes and preferences can produce problematic or even repugnant outcomes. Welfare economics would be misguided if it took Draco’s avarice into account. Clearly, some information has to be ignored. But which?

Political scientist Robert Goodin is a key proponent of the view that preferences should be put through a process of “laundering” before being entered in a welfare analysis. Goodin is interested in problematic preferences, such as Draco’s avarice. As our example shows, though, the principle also needs to be applied to prosocial preferences, such as Harry’s altruism. A welfare analysis based on Draco’s “unlaundered” preferences would come to the same conclusions as one based on Harry’s unlaundered preferences: Draco would end up better off than Harry.

The compensatory logic of welfare economics is convincing in the context of environmental protection. But extending it to private choices reveals a conflict between the principles of welfare economics and liberal values. The principles of a free and liberal society require that personal preferences about other people’s private choices are deliberately ignored.

An example by economist and philosopher Amartya Sen illustrates this point: One person wants to read Lady Chatterley’s Lover, a novel containing explicit descriptions of sex. Another person is a prude, thinks that nobody should read that kind of book, and tries to stop the first person from doing so. If the first person goes ahead and reads the book, their actions will have adverse effects on the second. On the face of it, applying compensatory logic can address an inefficiency in this situation too: If the first person refrains from reading all of the book and is financially compensated for that restraint by the second person, both will be better off - the first will be happy with the extra cash; the second will be happy to think that they have protected the first’s decency.

In a liberal society, though, it is important to respect people’s private choices. Preferences about others’ choices - the books they read, the clothes they wear, the people they meet, the opinions they express - should play no role in public policy. Consequently, preferences of this kind should be deliberately ignored in welfare analysis.

The Model of Wishful Thinking

Up to now, our discussion has focused on which information should be ignored by impartial decision makers for the good of those affected. But what if those affected are themselves deliberately ignoring information? The following example illustrates what can be at stake in this kind of situation.

Many people believe that the world is a just place and that those who work hard or invest in their education will eventually reap the rewards. At the same time, those same people are confronted with the daily reality that social mobility isn’t a given, that economic inequality tends to persist over generations, and that hard work doesn’t necessarily pay off. There is evidence that people tend to be overly optimistic about the chances of moving up the social ladder. They keep on dreaming the American dream, even though it’s obvious that only a lucky few will go from rags to riches.

Against this background, economists Roland Bénabou and Jean Tirole developed a model of wishful thinking, which describes how individuals often suppress unfavorable information as a way of dealing with cognitive dissonance. People feel the need to believe that the world they live in is just and therefore deliberately ignore everything that threatens this belief. According to Bénabou and Tirole, ignoring the unpleasant reality has benefits. By continuing to dream the American dream, people are able to stay motivated and invest more in their education than would otherwise be the case. Research has shown that people tend to give too little weight to their future well-being when making choices. As a result, they may not put enough effort into getting a good education. This problem would be exacerbated if their expectations about their chances of social mobility were realistic. Holding tight to the American dream makes it easier for them to overcome procrastination and work hard at school, college, or university.

The benefits become even clearer when we apply this example to children and their parents: Parents generally tell their children that hard work pays off and tend to shield them from the knowledge that their efforts may be in vain. But how does this tactic affect a child’s welfare? Do parents harm their children by withholding information? If all children were self-starters who pursued their goals diligently and consistently, the answer would be yes. In this “best world,” parental intervention can only ever be harmful, because the children are already doing everything right.

But if we assume that children are not able to act with sufficient foresight, their parents’ bending of the truth will be helpful. In a “second-best world,” it may make sense to counter one irrational belief with another. This example illustrates a more general lesson from the “theory of the second best” by economists Richard Lipsey and Kelvin Lancaster.

As these vignettes have shown, deliberate ignorance can serve a useful purpose in welfare analysis. Dumbledore should not place too much weight on Harry’s and Draco’s social dispositions, for example; rather, he should split the cake fairly. So does this mean that ignorance is generally bliss? Not quite. More knowledge often leads to better decisions. But in some situations, additional information can stand in the way of justice, liberty, or social mobility. And that information is better ignored.

This article is a revised and shortened version of the chapter “Harry Potter and the welfare of the willfully blinded” from the book Hertwig, R., & Engel, C. (Eds.). (2020). Deliberate ignorance: Choosing not to know. MIT Press.
The original chapter is available in PDF format.